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Cable & Wireless in Talks
With Partners Veba, RWE

By

Silvia AscarelliStaff Reporter of The Wall Street Journal

Updated Feb. 5, 1997 12:01 a.m. ET

FRANKFURT --
Cable & Wireless
PLC confirmed it is in talks with Veba AG and RWE AG about the "future of their partnership" in Europe, even as industry sources speculate about C&W's possible replacement in the alliance.

Industry sources say the U.K. company's German partners in the three-way alliance have approached both
SBC Communications Inc.
and
Bell South Corp.
, two U.S. regional phone companies, to replace C&W in the German venture. Both U.S. firms have signaled interest, the sources say.

An SBC spokesman declined to comment, both on whether the company has been approached or on its overall interest in the German market. Bell South didn't return telephone calls seeking comment. Other international companies haven't been excluded from the list of potential partners, the industry sources stressed.

A Matter of Days?

Observers say it may be only a matter of days before C&W decides to quit its Vebacom joint venture and along with it the alliance with Veba and RWE -- the newest partner in the threesome -- largely because of disagreements over strategy. That potentially could prompt a new set of couplings in the volatile world of German telecom alliances less than a year before Europe's largest market is to be fully liberalized.

The U.K. company declined to comment on the speculation. "Cable & Wireless and Veba are in discussion about the future of their partnerships in Germany and the rest of Europe," the company said in a statement. "The discussions are continuing and a more detailed statement will be made in due course."

Any shuffling in the alliance, however, likely would strengthen RWE's position. The utility is expected to insist that it be put on equal footing with Veba in any new partnership. The current alliance is structured with Veba owning 40%, RWE about 38%, and C&W about 22%.

If C&W leaves the alliance "the stake could be taken by someone else," a Veba spokeswoman told Reuter News Service. "We are talking to a lot of people. A lot of people are interested."

C&W Shares Jump

Sources say Bell South would be an attractive replacement for C&W because it already is partnered with Veba through E-Plus, Germany's third digital cellular network. But SBC is financially more powerful and could bring an entree into the French market through its stake to build and operate the second national cellular network, those sources say.

Veba and RWE's share prices gained only slightly on the swirl of speculation. But C&W jumped 3.2%, or 15 pence, to 479 pence a share in London trading.

Speaking in Davos, Switzerland, C&W Chief Executive Richard Brown told AP-Dow Jones News Service that he has led a re-evaluation of C&W's international strategy. But he poured cold water on speculation that this would see the company abandon the German market to focus more intently on Asia.

"We have not diminished our appetite to be a global player" and we always reassess the best way to do that, Mr. Brown said. "But to say we're pulling back in Europe or that it's less appealing to us than some other region of the world is not true." He added: "We're in the German market today and we'll be affiliated with the German market in the future."

Diminished Role

But the relationship between C&W and Veba has long been thought to be difficult. Industry observers say the U.K. company disagrees with Veba over the size of the infrastructure investments necessary (Veba is pushing for more) and C&W's diminished power following the inclusion of RWE last October.

Moreover, C&W could offer services in Germany independently of the Veba/RWE alliance, industry sources say. One possibility would be on its own. The company already has toeholds in many European countries. Another would be to join forces with Global One, the international telecom service alliance formed by
Deutsche Telekom AG
, France Telecom and
Sprint Corp.
of the U.S.

"People are assuming that we will pull out of this alliance and naturally jump into Global One," a C&W spokeswoman says. "Don't assume anything."

Meanwhile, German sources told Reuter that Veba had already offered C&W terms to leave the partnership. Under the terms, Veba would give C&W its stake in C&W Europe and buy back C&W's 45% stake in their joint venture Vebacom, the news service reported. Veba would keep its 10.4% stake in C&W under the terms of the offer, the sources were quoted as saying. A spokeswoman for Veba said she couldn't confirm or deny the offer had been made. The C&W spokeswoman declined to comment.

Cable & Wireless in Talks
With Partners Veba, RWE

FRANKFURT -- Cable &amp; Wireless PLC confirmed it is in talks with Veba AG and RWE AG about the &quot;future of their partnership&quot; in Europe, even as industry sources speculate about C&amp;W's possible replacement in the alliance.